Netflix’s third-quarter earnings tumble amid global expansion

Netflix Inc. reported a dramatic 88% drop in its third-quarter earnings, as the movie subscription service continues to invest in global expansion.

The company logged just $7.7 million in net income for the quarter ended Sept. 30, down from $62.5 million the same time a year earlier. Revenue rose to $905.1 million, up 10% from a year ago.

Netflix’s streaming service gained 2 million members, bringing the number of worldwide members to 29 million.

In the U.S., subscribers to Netflix’s Internet streaming service grew to 25.1 million — up more than 20% from a year earlier. Revenue gains from its domestic streaming more than offset declines in Netflix’s traditional DVDs-by-mail business.

Television shows now account for about two-thirds of Netflix viewing. Six of its top 10 shows are available exclusively on Netflix.

Subscribers are watching fewer movies on Netflix, as they choose from a variety of other options, including Redbox, to rent films. Netflix said the films available through its deal with Epix accounted for only 5% of viewing on the service — informing the decision to end its exclusive content arrangement with the premium TV channel.

Netflix will continue to offer films from Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer on a non-exclusive basis.

“While we were interested in keeping Epix movies exclusive to Netflix, we and Epix could not reach terms that made sense to both of us,” Netflix CEO Reed Hastings wrote in a letter to investors. “We could better spend the incremental dollars on high-profile TV titles.”

Internationally, Netflix added 700,000 new members in the quarter — bringing the total number of international streaming subscribers to 4.3 million, stronger than initially forecast. But this growth has come at a steep cost, dragging down profits by $92.4 million.

Netflix launched its service in the Nordic countries of Denmark, Finland, Norway and Sweden last week. In August, the company said the number of subscribers it has in the U.K. and Ireland exceeded 1 million. The service also boasts more than 1 million members in Latin America, where it has encountered a reluctance by consumers to provide credit-card information over the Internet.

“It will take longer than we had planned to get to profitability in Latin America,” Hastings conceded.

Netflix warned that it would “likely” move to a loss in the fourth quarter because of its launch investment in the Nordics. The company’s move to create original programming also will require more up-front cash than would be needed to license content.